SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ALBANY -— X AIRBNB, INC., Index No.: 5593-13 Petitioner, RJI No.: 01-13-111676 -against- Judge Gerald W. Connolly ERIC T. SCHNEIDERMAN, Attorney General of the State of New York, Respondent. -X MEMORANDUM IN OPPOSITION TO AIRBNB, INC.'S MOTION TO QUASH AND IN SUPPORT OF THE ATTORNEY GENERAL'S CROSS-MOTION TO COMPEL RESPONSES TO AN INVESTIGATORY SUBPOENA ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Petitioner 120 Broadway New York, NY 10271 (212)416-8433 Of Counsel: Karla G. Sanchez Executive Deputy Attorney General Economic Justice Division Randall Fox Bureau Chief Taxpayer Protection Bureau Clark Russell Assistant Attorney General Internet Bureau TABLE OF CONTENT Page(s) TABLE OF AUTHORITIES ii PRELIMINARY STATEMENT 2 FACTS 5 A. AirBnb's Business of Listing Apartments for Rent on the Internet 5 B. The Short-Term Zoning Laws 8 C. Apartment Buildings' Contractual Prohibitions on Short-Term Occupancy 11 D. The Hotel Occupancy Tax Law 12 E. The New York State Attorney General's Investigation Reveals Compelling Evidence that AirBnb Hosts Are Violating Various Laws 14 1. AirBnb Hosts Violate the Short-Term Zoning Laws 14 2. AirBnb Hosts Do Not Pay the Hotel Occupancy Tax 15 F. The NYAG Information Request to AirBnb 16 1. The NYAG Information Request to AirBnb 16 2. Discussion Regarding Compliance by AirBnb with the August 19th Letter 16 3. The NYAG Subpoena Served on AirBnb 17 4. AirBnb's Last-Minute Offer in Lieu of Compliance with the Subpoena 18 ARGUMENT 19 I. THE SUBPOENA IS WELL WITHIN THE ATTORNEY GENERAL'S BROAD INVESTIGATORY AUTHORITY 19 II. AIRBNB'S CONSTITUTIONAL ARGUMENTS ARE NOT JUSTICIABLE IN THIS PROCEEDING 23 III. THE ATTORNEY GENERAL'S TARGETED SUBPOENA IS NOTOVERLY BROAD OR UNDULY BURDENSOME 27 IV. THE SUBPOENA SEEKS INFORMATION NOT PROTECTED FROM DISCLOSURE CONCLUSION 34 TABLE OF AUTHORITIES Page(s) CASES 256 East 10th Street NY LLC v. Nicole Elizabeth Beall. No. 158392/2013 (Sup. Ct N.Y. County Sept. 13, 2013) 11 American Dental Coop., Inc. v. Attorney Gen, of New York, 127 A.D.2d 274 (1st Dep't 1987) 20, 21 Anheuser-Busch, Inc. v Abrams, 71 N.Y.2d 327 (1988) 19, 20 Arriaga v. Mukasey, 521 F.3d 219 (2d Cir. 2008) ;. 25 Board of Managers of Grammercy Condominium v. Blodget, No. 150977/2013 (Sup. Ct. N.Y. County Jan. 23, 2013) 12 Board of Managers of the South Star v. Sophie Grishanova, No. 159101/2012 (Sup. Ct. N.Y. County Feb. 7, 2013) 9, 11 Church of St. Paul & St. Andrew v. Barwick, 67N.Y.2d510(1986) 25,26 Freedom Discount Corp. v. Korn, 28 A.D.2d 517 (1st Dep't 1967) 20 Hill v. Cuomo, 2009 N.Y. Misc. LEXIS 2370 (Sup. Ct. Ulster County Mar. 17,2011) 22 Hire Counsel New York LLC v. Zelda Owens, Index No. 112012/2011, 2012 N.Y. Misc. LEXIS 3652 (Sup. Ct. N.Y. County July 24, 2012) 28 Hofian v. Cuomo, 67 A.D.3d 1144 (3d Dep't 2009) 19,20,21 In the Matter of Crowley Foods Inc. v Lefkowitz, 75 A.D.2d 940 (3d Dep't 1980) 21 In re Brodsky v. New York Yankees, 26 Misc. 3d 874 (Sup. Ct. Albany County 2009) 22 In Re Future Tech. Assoc, LLC v. Special Comm'r. of Investigation of the NY City School Dist, 2011 N.Y. Misc. LEXIS 1352 (Sup. Ct. N.Y. County Mar. 17, 2011) 22 John Hunter v. Warren County, 21 A.D.3d 622 (3d Dep't 2005) 27 LaRossa, Axenfeld & Mitchell v. Abrams, 62N.Y.2d583(1984) 19 Lefkowitz v. E.F.G. Baby Prod., 40 A.D.2d 364 (3d Dep't 1973) 20 Matter of Abbruzzese v. N.Y. Temp. State Comm'n. On Lobby, 43 A.D.3d 518 (3d Dep't 2007) 19 Matter of Dairymen's League Coop Assn. Murtagh, 274A.D. 591 (1948) 19 Matter of La Belle Creole Int'l, S.A. v. Attorney General, 10 N.Y.2d 192 (1961) 19, 20, 22 Matter of New York Blue Line Council, Inc. v. Adirondack Park Agency, 86 A.D.3d 756 (3d Dep't 2011) 26 Matter of Roemer v. Cuomo, 67 A.D.3d 1169 (3d Dep't 2009) 21 Matter of Sachs v. New York State Racing & Wagering Board, 227 A.D.2d 802 (3d Dep't 1996) 28 Matter of Thomas v Dosberg, 249 A.D.2d 999 (4th Dep't 1988) 32 Matter of Town of Riverhead v Central Pine Barrens Joint Planning & Policy Commn., 71 A.D.3d 679 (2d Dep't 2010) 25 Maynard v Cartwright, 486 U.S. 356(1988) 25 Myerson v. Lentini Bros. Moving & Storage Co., 33N.Y.2d250(1973) 30 New York State Dep't Taxation & Fin, v. New York State Dep't of Law, 44N.Y.2d575(1978) 32 NYC v. 364 West 51st Street Associates LP, ECB Appeal No. 1200294 (July 26, 2012) 10 Olmstead Condo v. Samuels et al.. No. 153779/2013 (Sup. Ct. N.Y. County Apr. 25, 2013) 12 Parker v Levy, 417 U.S. 733(1974) 25 Pavillion Agency, Inc. v. Spitzer, 9 Misc. 3d 626 (Sup. Ct. N.Y. County 2005) 20, 31 People v. Nelson, 69N.Y.2d302(1987) 24 People v. Wedelstaedt, 77 Misc. 2d 918 (Sup. Ct. Bronx County 1974) 32 Pharm. Inc. v. United States, 391 F.3d 377 (2d Cir. 2004) 25 Rent Stabilization Ass'n of the City of New York v. Dinkins, 5 F.3d 591 (2d Cir. 1993) 24 State of New York v. Princess Prestige Co., Inc., 42N.Y.2dl04(1977) 20 The City of New York v. Smart Apartments LLC, Robert K.Y.Chan, Toshi Inc, No. 402255/12 (Sup. Ct. N.Y. County, Feb. 13, 2013) 9, 11, 27 Toilet Goods Assn., Inc. v. Gardner, 387 U.S. 158(1967) 25,27 United States v. Rybicki, 354 F.3d 124 (2d Cir. 2003) 25 Virag v. Hynes, 54N.Y.2d437(1981) 22 Wiener v. Abrams, 119 Misc. 2d 970 (Sup. Ct. Kings County 1983) 31 Wonder Works Const. Corp. v. Seery, Index No. 100096/2010, 2011 N.Y. Misc. LEXIS 4833 (Sup. Ct. N.Y. County Oct 12, 2011) 32 STATUTES AND REGULATIONS Executive Law § 63(12) passim §292(6) 32 General Business Law §349 27 Penal Law § 1104 12 § 1105 12 §1141 22 § 1146 32 § 1370 21 § 1371 21 C.P.L.R. §2308 2 New York Multiple Dwelling Law Art. 1 § 4 (8) a 10 §304 10 Laws of New York Chapter 225 10, 11 New York City Administrative Code § 11-2001(2012) 12 § 11-2501 (2012) 13 § 11-2502(2012) 12, 13 §27-2004(1980) 10 The State of New York, by Attorney General Eric T. Schneiderman ("NYAG"), respectfully submits this memorandum of law in opposition to AirBnb Inc.'s ("AirBnb") motion to quash and/or modify an investigatory third-party subpoena served by NYAG, and in support of the NYAG's cross-motion pursuant to CPLR § 2308(b), for an order compelling AirBnb to comply with the NYAG's investigatory subpoena immediately upon service of notice of entry of this Court's order, or on such other date as the Court may direct. PRELIMINARY STATEMENT AirBnb readily admits that the data subpoenaed by the NYAG will identify illegal activity, yet AirBnb takes the extreme step of seeking to quash what is a narrowly-tailored law enforcement subpoena issued to the only source of that information. AirBnb does not begin to meet the heavy burden necessary to quash a subpoena issued pursuant to the NYAG's law enforcement powers. As such, its motion should be denied and it should be compelled immediately to produce the requested data. AirBnb owns a website that allows owners/lessees of apartments ("Hosts") to rent their homes to tourists and other transients ("Guests") on a short-term basis for a fee. It is illegal for residents of Class A buildings to rent out their apartments for any period of time less than 30 days unless they are also present in the apartment. Law enforcement has received numerous complaints and the NYAG has conducted its own investigation demonstrating that many Hosts are renting their apartments illegally. In addition, the NYAG's investigation has revealed that an extremely small percentage of individual Hosts actually collect the required hotel occupancy tax on behalf of the Guests who stay in their apartments. AirBnb acknowledges that many of its users are violating the law. It has stated publically that it wants to work with law enforcement to "remove bad actors" and that "illegal hotel operators ... have no place on AirBnb." They have also admitted that "it makes sense for our community to pay hotel occupancy tax." And yet AirBnb has been wholly uncooperative, seeking to instead to step into the shoes of law enforcement and dictate the scope of the NYAG's investigation. To fully uncover the scope of the illegal activity, the NYAG served an investigatory, third-party subpoena on AirBnb requesting a list of Hosts in New York, the gross revenue generated from the short-term rental of those apartments, and related information. The subpoena was purposefully narrowed to seek information only about Hosts that would be violating the law. The NYAG is entitled to a presumption of good faith in the issuance of subpoenas and recipients of subpoenas must comply unless the subpoena seeks documents that are "utterly irrelevant" to the inquiry. Given the evidence of numerous violations of law by the AirBnb Hosts and the NYAG's public purpose of enforcing the laws, NYAG easily meets this threshold. In a desperate attempt to complicate what is a simple matter, AirBnb argues that the subpoena should be quashed because the New York State laws regarding short-term rentals and hotel occupancy tax are "unconstitutionally vague." But, because the NYAG is not seeking to enforce these laws against AirBnb it has absolutely no standing to object to the laws. Moreover, the constitutionality of these laws is not ripe for determination until they are actually applied. Currently, no charges have been brought and there is no factual record for the Court to make the necessary "as-applied" determination. Moreover, the NYAG's powers of enforcement and potential legal claims extend beyond the zoning and tax laws and afford the NYAG additional bases for the production of the information. AirBnb also argues that the subpoena is overly broad and unduly burdensome. However, it offers no proof demonstrating how it would be unduly burdensome. The majority of information requested by the NYAG, including Host name, address of accommodation, and dates/cost of rental is collected as part of the electronic booking process on AirBnb.com. AirBnb also argues that it does not have information as to whether the Hosts stayed at the apartment during the rental period; yet it previously offered to provide the NYAG with the top 40 Hosts by gross revenue, where the Host did not stay at the apartment. Indeed, when a Host posts his or her apartment on the website, he or she is required to indicate whether they are renting the "entire apartment" or a "shared room." Finally, AirBnb argues that the subpoena seeks confidential and private information, including tax returns. AirBnb does not cite to any applicable laws that would protect the information sought, and completely ignores that the subpoena is requesting business transaction information, such as the number of times the Host rented his or her apartment and the gross revenue derived. While the subpoena requests tax-related communications, it only seeks information regarding what AirBnb disclosed to the Host concerning the type of taxes they have to pay, and related correspondence. The NYAG does not seek, and the subpoena should not be interpreted as seeking, tax returns for Hosts. The only way that the NYAG can investigate the illegal activities of the Hosts is for AirBnb to provide the subpoenaed information. AirBnb should not be allowed to effectively close an investigation before it even starts, or otherwise shield its Hosts from illegal conduct. As set forth herein, this Court should deny AirBnb's motion to quash the subpoena, or any attempt to modify it, and grant the NYAG's cross-motion to compel, as well as costs incurred in connection with this motion. FACTS A. AirBnb's Business of Listing Apartments for Rent on the Internet AirBnb owns a website located at <www.airbnb.com> ("AirBnb.com"), which provides an online platform for individuals, referred to as "Hosts," to rent their apartments to tourists and other third party transients. In New York City alone, AirBnb has more than 25,000 listings from over 15,000 Hosts. See Affidavit of Vanessa Ip, NYAG Investigator, dated November 7, 2013 ("Ip Affidavit") 16 (airbnb.com/locations/New-York). Brian Chesky, the founder and CEO of AirBnb.com, is quoted as saying the average New York City Host grosses $21,000 a year. Id. Ex. A. To list on AirBnb.com, a Host must create an account and profile, select the property type {e.g., "Apartment," "House," "Bed & Breakfast"), the room type {e.g., "Entire Home/Apt." or "Shared Room"), the number of people it accommodates (1 to 16+) and the host city. Below is a sample screen shot from AirBnb.com presented to proposed Hosts: